Kinross Gold Corporation

Kinross Gold Corporation (TSX: K) is a Canada based gold mining company whose projects are located in the United States, Brazil, Russia, Mauritania, Chile and Ghana. 

Key Highlights:

• Bullish long-term outlook from Chile: The company has its mining presence in Chile and operates through its projects like La Coipa Restart, Lobo-Marte etc. The above locations offer ample gold reserves and is expected to add prospects in the coming days. Project La Copia Restart is on track and expected to commence its first production in mid-2022. Within the Lobo Marte, the company is conducting feasibility study, which is expected to be completed in the fourth quarter of 2021.
• Constant reduction in total debt: The company successfully reduced its total borrowings in the recent quarters, despite challenging macro scenario, which indicates prudent capital management. Notably, debt to equity ratio improved from 0.48 in Q2FY20 to 0.22 in Q2FY21. A lower debt provides higher financial flexibility and reduces interest costs.

• Started paying dividends: In the recent past, the company started distributing dividend after 2013, backed by strong cash flow generation. Notably, in H1FY21, the company reported total dividend distribution of USD 75.7 million, which is a key positive.

Q2FY21 Financial Highlights:

• Kinross announced its second-quarter result, wherein the company posted revenue of USD 1,000.9 million, as compared to USD 1,007.2 million in Q2FY20. Average realized price of gold stood at (USD 1,814/ounce v/s USD 1,712/ounce in pcp). During the quarter, the company reported a lower production of 538,091 Au eq. oz, as compared to 571,978 Au eq. oz. in Q2FY20.
• Gross profit stood lower at USD 315.1 million, as compared to USD 416.6 million in pcp due to the lower revenues and a higher total cost of sales (USD 685.8 million v/s USD 590.6 million in pcp).
• The quarter was marked by a surge in other operating expense (USD 55.8 million v/s USD 52.9 million in pcp), an increase in exploration and business development costs (USD 34.0 million v/s USD 17.9 million in pcp). General and administrative cost also stood higher at USD 31.4 million v/s USD 24.7 million in pcp.
• Net earnings were reported at USD 118.4 million, decreased from USD 196.0 million in pcp due to higher input cost, partially offset by lower finance costs.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: As the operations of the company depends on the gold prices, a correction in gold prices are likely to dampen the company’s performance. Moreover, unable to add new mineral exploration would lower the company’s reserves. The company reported a slide in cash flows due to higher input costs, and continuation of the above trend would dampen the company’s overall performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has a strong liquidity profile and has more than USD 2.2 billion of cash and available credit at the end of Q2FY21, which seems to be sufficient to fund its short term and long-term capital requirement. For FY21, the company expects its gold equivalent production of 2.1 million oz, wherein it has already produced 1.1 million oz during H1FY21. Capital expenditure is expected at ~USD 900 million. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like B2Gold Corp, Yamana Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 7.06 on September 16, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 16, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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